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W-2 Reporting: What Employers Need to Know

By mcassidy

Posted on Wednesday, July 6, 2011

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You've probably heard that employers will be required to report the cost of employer-sponsored health benefits on W-2 forms. Here are a few questions and answers about W-2 reporting and what employers need to know:

Why are employers required to do this reporting? The recently enacted Affordable Care Act (or health care reform law) requires employers to include the cost of health coverage on the W-2 form in a new field starting with the 2012 tax year (W-2s filed in 2013). Employers who will issue fewer than 250 W-2 forms are exempt from this requirement until the 2013 tax year.

If the cost of health coverage is on the W-2, does this mean that it's taxable? No, this is a reporting requirement only and does not affect the amount taxed. When do employers need to start issuing W-2s with this amount? The requirement starts for the 2012 calendar year and reporting is optional for 2011. If an employer issues fewer than 250 W-2 forms, that employer does not have to start reporting until the 2013 tax year.

How do employers know what amount to report on W-2s? There are three methods employers can use to calculate the cost of coverage: 1. COBRA-applicable premium 2. Modified COBRA premium 3. Premium charged (for insured plans only) For more details on these methods, see the IRS Notice 2011-28 for interim guidance on how to calculate the cost of coverage.

What type of coverage doesn't need to be reported on the W-2 form? According to various sources, employers would not need to include these amounts in the W-2 reporting: • Accident insurance • Disability insurance • Employee contributions to health care flexible spending accounts and health savings accounts • Long-term care insurance • Standalone dental and vision coverage • Workers' compensation insurance

We expect to receive more guidance from the Internal Revenue Service, so this list may change.